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Salience and management‐by‐exception

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  • Moritz Mosenhauer

Abstract

This paper studies a firm's organisational responses if its agents misevaluate information. If a manager overreacts to unusual events, it may be desirable for the firm to adopt the management practice management‐by‐exception. I develop a theoretical framework to study this technique and derive conditions under parsimonious assumptions for when it should be adopted. Moreover, I show how further assumptions can refine the model's predictions, establishing a direct link between the manager's over‐responsiveness and organisational rigidity. The strategy is implemented by controlling the information that the manager receives.

Suggested Citation

  • Moritz Mosenhauer, 2022. "Salience and management‐by‐exception," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3685-3697, December.
    • Handle: RePEc:wly:mgtdec:v:43:y:2022:i:8:p:3685-3697
    DOI: 10.1002/mde.3622
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